VANITYY: Will a Flat Federal Sales Tax Stop the Flood of Illegals?

10/26/05 | Jo Nuvark

[Jo Nuvark]

Could we stop some of the abuse from illegal aliens by converting from an income tax that illegals avoid, to a federal sales tax that illegals cannot avoid?

Many illegals from Mexico pay no taxes and send much of their income home. A federal sales tax could discourage the abuses and possibly stem the human flood.

[Principled]

She pays her full share when she buys stuff today.

No, she doesn't. Her full share included income and payroll tax and embedded taxes. She only pays embedded taxes. She avoids paying her share of income and payroll tax.

[Principled]

To claim any kind of an advantage is disingenuous, but after explaining this point 1000 times I know it will get no where.

I am not claiming an advantage with respect to the total tax collected. I've explained that 1000 times too.

The advantage imo is that the prostitute pays her full share of taxes, instead of having others pay it for her.

Note that I am not saying that the total collected changes.

[AuH2ORepublican]

"You pay an illegal $1000 for some service, are they going to remit a tax?"

---

Of course not, but neither do they pay the income tax today.

"When they purchase goods legally today, they already pay embedded taxes in the costs of the goods to cover all the taxes of every employee and business owner in the chain."

---

Embedded, shmembedded. The income tax imposed on citizens and legal residents (and indirectly passed on to all purchasers) does not reduce the illegal alien's purchasing power anywhere near as much as if there weren't any income taxes and there was a national sales tax. A sales tax will be borne by illegal aliens in a more direct way and to a greater extent than the income tax paid by manufacturers and distributors ever could.

[Mamzelle]

re) If they pay some taxes (any taxes), they can have their stinkin' SS disability. )))

W is with you on that one. He's been devoting lots of energy to having ss benefits sent directly to Mexicans who have worked in the US..

This, along with his passionate devotion to allowing Mexican trucks and truckdrivers on US highways to compete with US truckers. Know any truckdrivers?

[SolidSupplySide]

The advantage imo is that the prostitute pays her full share of taxes, instead of having others pay it for her.

Under neither system does the prostitute "pay" anything. She doesn't pay income taxes on her activities today, she won't pay sales taxes on them tomorrow. That is the nature of the underground economy -- it can't be captured because the producers are dishonest.

When she goes out and buys something in the legitimate economy today, the producers will remit income taxes. If there is a sales tax, the producers will remit that, too. That is the nature of the legitimate economy. If the producers are honest, they will pay the tax.

Note that I am not saying that the total collected changes.

I agree that there isn't really a big difference between income taxes and sales taxes.

[Principled]

Under neither system does the prostitute "pay" anything.

Wrong.

Under our income tax, she pays embedded taxes in prices when she buys legal stuff, representing a portion of her tax burden.
Under an nrst, she will pay her entire tax burden when she buys legal stuff.

She doesn't pay income taxes on her [illegal] activities today, she won't pay sales taxes on them[ illegal activities] tomorrow.

This was never in question.

She does pay a portion of her taxes today via legal purchases containing hidden, embedded tax. But she doesn't pay any income or payroll tax.

Under an nrst, she will pay all of her taxes when she buys stuff legally.

I agree that there isn't really a big difference between income taxes and sales taxes.

With whom are you agreeing? I said there are important differences. Income taxes and sales taxes have similarities - it is the difference in how the sales tax collects from the illegal economy that I was pointing out.

[lOKKI]

[...Suddenly you're paying a 25% tax on a product, and there's no way to fight it. Where do you start? The tax on the paint? The tax on cardboard? There are soon so many (tax)strings attached to the product there's no way to unravel them...]

Can you give an historical example other than existing surcharges and tarrifs?



I'm a bit late in responding
A value added tax (sometimes called a goods and services tax, as in Australia and Canada) applies the equivalent of a sales tax to every operation that creates value. To give an example, sheet steel is imported by a machine manufacturer. That manufacturer will pay the VAT on the purchase price, remitting that amount to the government. The manufacturer will then transform the steel into a machine, selling the machine for a higher price to a wholesale distributor. The manufacturer will collect the VAT on the higher price, but will remit to the government only the excess related to the "value added" (the price over the cost of the sheet steel). The wholesale distributor will then continue the process, charging the retail distributor the VAT on the entire price to the retailer, but remitting only the amount related to the distribution markup to the government. The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT. Economic theorists have argued that this minimises the market distortion resulting from the tax, compared to a sales tax. However, VAT is held by some to discourage production.



Here are some easy examples from the net:

http://www.computerworld.com/industrytopics/retail/story/0,10801,68601,00.html

"Fictionwise and other businesses that sell digital downloads such as music and software, as well as subscription-based pay-per-view television and radio, will have to apply the VAT on each sale and remit the tax payment. VATs range from 15% to 25%, depending on the country."

http://www.ideamerge.com/motoeuropa/vat/chapter/

Most European governments impose a value-added tax or VAT—a national sales tax of sorts—on goods and services. It's usually about 20 percent and is buried in the price.


You can see that it's easy for the government to tack on an incremental increase at some point in the production process from raw materials to finished product, and that the 'location' of the tax increase can be easily hidden from consumers.

[Jo Nuvark]

I see what you are getting at here. And to a hideous extent it has already happened in the auto and fuel industries. If the Fair Tax could work there would have to be a built in transparency. Otherwise... multiples of taxation exists without representation. Am I getting this correctly?

I believe you made your point that this would not discourage illegal workers. But do you agree that we need a way to support them other than middle class taxpayers?

[phil_will1]

"The point is that there is no transaction that the sales tax can capture that the income tax doesn't. Sales taxes can't capture the underground economy any better than income taxes."

That is not true with respect to illegal labor. Illegals don't pay income and payroll taxes in many cases today. However, they do buy stuff to consume. Yes, they do pay imbedded taxes now, but so do the rest of us. Under the FairTax, they would pay what we do at the register, but would not be eligible for the rebate. That means they would be moving from a tax advantaged position to a tax disadvantaged one.

[phil_will1]

"They don't pay much in the way of taxes, period. If we converted to a flat tax, they'd be paying for the first time."

Every flat tax proposal that I am familiar with exempts income up to a certain level and that level generally exceeds the income level of most illegal immigrants. This is in contrast to the FairTax, where every dime spent on personal consumption is taxed. As previously pointed out, the rebate would not be available to illegals.

[phil_will1]

"How about a tax of fifty percent on all money orders and money transfers sent to mexico?"
"I never thought I'd see advocacy of taxes on US exports on Free Republic."

Money orders and money transfers to Mexico are "exports"? I'm not advocating that approach, but calling these transactions "exports" is a bit of a stretch to me.

[phil_will1]

"The cost of illegal immigration is $40,000 per person, per year."

I find that hard to believe. We could send every illegal child to private school and it wouldn't be $40k/yr. Do you have a source for that statistic?

BTW, I don't think that implementing a sales tax would necessarily slow down the tide of illegal immigration, but it certainly would move illegals from a tax preferenced to a tax disadvantaged position.

[phil_will1]

"You can't get a PRE-BATE check without a Social Security Number."
"There are places in town where $30 will get you a valid Social Security number."

I would question your use of the term "valid". If an illegal uses an SSN that he paid $30 for, I would not consider that "valid".

More to the point, however, is that the reason that SSNs will be required for the the rebate is that it will facilitate automated checking for dupes. If the same SSN is being claimed on multiple rebate requests, that is something that would be relatively easy to catch. I would assume by "valid" you mean that it is a real SSN assigned to some legal US citizen. Therefore, the only way this would work would be if the real US citizen did not claim his rebate.

[phil_will1]

"Once you begin arguing for teh fair Tax based on illegal immigration, youve lost the economic argument and are now grasping at straws."

I disagree. There are a number of what I refer to as "collateral benefits". This is one of them. Some people believe that freedom is the primary issue. Others would say economic benefits, as you do. The fact that there are a number of secondary benefits does not detract from the primary benefits, but just adds to them, in my opinion.

If we can move illegals from a tax advantaged position to a disadvantaged one, that is certainly attractive to many Americans, although it would not seem to justify reforming our tax system. However, if we claim that it will stem the tide of illegals, that is a stretch IMHO. As others have pointed out on this thread, as long as the economic opportunity in the USA is greater, the illegals will come - at least until we get more serious about border security and immigration law enforcement.

[phil_will1]

"Besides a good portion of that money is going to be sent back to Mexico anyways, so neither system could capture it."

Define "a good portion". I would hazard a guess that less than 40% of illegal wages earned here get sent back - probably FAR less. My reasoning is this: illegals aren't typically among society's more affluent and they (like most poor people) spend most of what they earn on basic necessities. Sales taxers hear this all the time as an objection to sales taxes being "regressive". Illegals still have to pay for a place to live, clothes to wear, food to eat, transportation, etc.

[RavenATB]

The way to address this problem is not just to stop the inflow of illegals...we must also get the illegals who are currently in this country to "want" to leave.

It's actually a problem with a simple answer. Congress should simply write two laws: one law to make it a federal crime to knowingly hire an illegal with a one-year mandatory minimum sentence for anyone convicted of doing so (and to require that employers keep a copy of each employee's Social Security card" in their records, to ensure that the employer has checked). And, they should write a second law making it a federal crime for any state or local government official to provide aid to illegals, except in such emergencies where lives are in immediate danger. If they can't be employed, and they can't get a welfare check, they'll leave on their own...and on their own dime.

[RavenATB]

"Yes, they do pay imbedded taxes now, but so do the rest of us. Under the FairTax, they would pay what we do at the register, but would not be eligible for the rebate. That means they would be moving from a tax advantaged position to a tax disadvantaged one."

Good point.

[RavenATB]

"My reasoning is this: illegals aren't typically among society's more affluent and they (like most poor people) spend most of what they earn on basic necessities. Sales taxers hear this all the time as an objection to sales taxes being "regressive". Illegals still have to pay for a place to live, clothes to wear, food to eat, transportation, etc."

Remember, many of these people...particularly the unmarried men...are willing to live with 30 of them to a home that would typically house a family of 3 or 4. When you have 30 adults earning an income to "maintain" (and I use that word loosely) a home that's typically maintained on the income of one or two bread-winners, the financial impact is far different.

I used to drive past a handful of these sort of "rental homes" on my way to work a couple years ago. One that I remember most vividly was a home that was probably no more than 800 square feet. In the evenings it was typical to see more than a dozen men in the yard, with a few of them tending a turkey fryer. I don't know about you, but I only use my turkey fryer a couple times a year...not every night.

I'll bet that many of these illegals don't spend more than $25 a month on housing. They probably didn't spend much more than that amount on food.

Many of them have, however, learned the trick of checking the dumpsters behind business that sell "Krispy Creme" dough nuts, because the boxed "day-olds" get dumped every morning when the Krispy Creme truck makes their delivery.

[phil_will1]

"Remember, many of these people...particularly the unmarried men...are willing to live with 30 of them to a home that would typically house a family of 3 or 4."

I own an investment property in a neighborhood which has a significant presence of latinos, some of which I assume are illegal. I don't know of a single instance of 30 or 40 (or even 10) residents in a SFR. Does it happen? I'm sure it does. Is it the rule or the exception? Based on my observations, it must definitely be the exception.

[Always Right]

Sales taxers hear this all the time as an objection to sales taxes being "regressive". Illegals still have to pay for a place to live, clothes to wear, food to eat, transportation, etc.

Certainly, so how long before a court tells us that illegals qualify for the fairtax prebate? But all that really doesn't make a difference since illegals pay the embedded tax now. It is the end consumer who is the person who actually pays all the taxes today. That is the theory behind the embedded taxes.